Climate Change Mitigation

Bob Jane T-Mart · May 14, 2011

Climate Change Mitigation

Introduction:

The purpose of this thread is not to discuss the validity of climate science and the conclusion of anthropogenic climate, that is largely established as fact. If you disagree with this proposition, you can make your own thread about it. Instead, we are discussing measures to prevent dangerous climate change (here defined as that above 2 degrees Celsius because it's used as a target by numerous nations.). In order to do this, we must emit no more than 1000 Billion tonnes of CO2 into the atmosphere between 2000-2050, around third of which has already been emitted as of 2009. This means that in order to prevent total emissions rising above 1000 billion tonnes, worldwide emissions of CO2 need to decrease by at least 50% by 2050 and approach 0 by 2100.[1][2]

Unfortunately, if no action is taken, according to this climate model [1], temperatures are almost guaranteed to increase beyond 2 degrees C. In short something drastic needs to be done.

Why is anthropogenic climate change important? Because it is known to have adverse affects on climate. [3], which will cause significant economic [4] and social stress, along with posing risks to many already threatened species and ecosystems.

There are three main methods of reducing emissions on a national or state level. (Feel free to suggest more) This include an emissions trading scheme (ETS), often referred to as a cap and trade scheme, a carbon tax and a hybrid scheme. All of these methods make use of market mechanisms and exist to provide an economic incentive for polluters to reduce their emissions. They do this through placing a price on carbon or providing a bonus to those who cut their emissions, the optimum of which is estimated to be from US$15 – US$60 per ton of carbon, depending on who you ask [5].

Emissions Trading Scheme

An emissions trading scheme works in this way. Carbon credits, or permits give are allocated (presumably based on their past emissions) or auctioned to polluters which give them the right to pollute a certain amount. These polluters are not allowed to pollute more than that amount unless they buy more permits and if they pollute less, they can sell excess credits to other polluters. This is supposed to create an economic incentive for companies to reduce their emissions.

The main advantage of this scheme is that it allows the government to determine quite easily the maximum amount of emissions over a certain time frame by changing the number of credits it hands out, or auctions. The other advantage of this scheme is that it is market based, meaning that it arguably is quite efficient. Furthermore, the sale of the permits represents a significant source of income for the government that could be used to invest in the development of renewable and alternative energy sources.

Unfortunately, there are issues with this sort of scheme, if the permits are allocated free of charge, a part of the incentive is lost; it doesn't cost anything to pollute, so long as you are polluting less than your permits would let you. It also is capable of producing a weird reverse effect, where companies deliberately keep their levels of pollution high to ensure that they keep receiving permits.[5][6] However, this problem is abated if the permits are sold instead of allocated without charge, as they will always have to pay in order to pollute. Additionally, the number of permits sold or allocated has to quite accurate, if there is an over supply of permits, the price of polluting will be too low to provide an adequate incentive to reduce pollution. This has actually occurred in the European Union Emissions Trading Scheme, where the price for permits actually reached near zero in 2007, when permits were over allocated; resulting in little incentive to reduce emissions.[7] Furthermore, if the permits are auctioned, the emissions trading scheme behaves much like a tax, possibly inhibiting economic growth, it is also regressive in nature, for the same reason a carbon tax is, low-income households generally spend more of their income buying electricity and fuel than high income households. This can be largely offset through compensation and the reinvestment of this money into the economy. Interestingly enough this compensation can take the form of a reduction in income tax [5], which would make low-carbon industries more competitive overseas, a definite benefit. Another issue with an ETS utilising auctioned permits, is that of carbon leakage. This is where carbon intensive businesses move overseas, because of the ETS making it more expensive to operate in that country. This results in that business, in effect escaping the ETS. This can be mitigated through compensation as well.

Carbon Tax

A carbon tax is a very simple method of reducing emissions; tax polluters, according to the rate at which they pollute, meaning ascribing fixed price to a certain amount of carbon dioxide emitted. e.g. $55 US/tonne of CO2 emitted. As of yet, no country has implemented a full carbon tax, where all sectors of the economy are included, however, this should not serve as a deterrent; somebody has to do it first.

The main advantage of this method is that it is simple and robust. There is no need to establish a market place for emissions permits and the tax is not vulnerable to overestimation, it is payed in retrospect, meaning that no prediction of future emissions is necessary. This results in a guaranteed price on carbon, no matter what, unless the government decides to alter it. Additionally, a carbon tax can raise money for the government, allowing it to invest that money in alternative energy sources and renewables.

The main disadvantage of this is that the the appropriate price needs to be set, enough to reduce emissions sufficiently, but not too much so that the negative economic consequences are too great. However, it should be noted that so long as the price is substantial, the incentive to reduce emissions will always exist. Furthermore, a carbon tax, will result in the increased prices of certain goods, meaning it could have negative economic consequences. Unfortunately, the carbon tax will in fact be regressive without compensation for low income households, as they are more likely to spend a significant portion of their household income on electricity and fuel. However, it should be noted that through measures such as compensation for households and the re-investment of this money into the economy, both of these drawbacks can be mitigated to a significant extent. [5] The issue of carbon leakage is not unique to an ETS, it is likely to have an affect on a carbon tax as well. Fortunately, it can be dealt with in exactly the same way, compensation.

Hybrid Schemes

Hybrid schemes are in effect emissions trading schemes, except for one crucial difference; they have a price floor and and price ceiling (possibly with an option that allows one to buy unlimited credits). This is designed so that the price of credits does not go unreasonably high or low, so as to still provide an appropriate incentive for polluters to lessen their emissions. However, it should be noted that Hybrid schemes do vary in nature.

These are advantageous, in that Hybrid schemes in effect combine the best of both worlds, they allow for a government to keep a steady price on emissions permits, while keeping the number of permits issued, within a reasonable boundary.

However, it should be noted that this scheme also suffers from the worst of both worlds, there is no certainty, in either the amount emitted, or the price that one pays to pollute. It is also complicated, and possibly more so than the other two options, meaning that its implementation will be harder. Also, if the permits are allocated freely, it will suffer from similar issues to an ETS. If the permits are sold, then issues of negative economic consequences arise, much like the other two options, although these can be avoided through compensation.

Conclusion:

Overall, it appears as if the carbon tax is the simplest and most robust option. For the reasons of raising revenue, simplicity and a guaranteed economic incentive, it is my view that it is the best system.

References

Climate Change Mitigation

Bob Jane T-Mart

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